If you raised your hand or silently said “me”, congratulations, you’re not alone. There’s one type of insurance most people will go out of their way to avoid discussing and Long Term Care (LTC) is it. Since we all know our lives will not go on indefinitely, life insurance discussions are much more “agreeable” conversations to have, especially because it really involves protecting our loved ones and/or business.
Long term care, however, is a different story. Just the thought of being packed away in a nursing home is enough for us to relegate the discussion to the farthest reaches in our minds that we can find. After all, no one wants to lose their independence and be forced to rely on others for the basics of daily living. It’s humbling and not how we’ve been raised to believe or act and surely not how most of us perceive ourselves. Independence is a hallmark of American society and the thought of giving it up is difficult. The reality, however, can be quite different. Assisted living facilities (ALF’s) and nursing homes of today can be quite comfortable, if not luxurious, with caring staff and events catering to many different activities.
But if there’s one thing we DO know, it’s that a significant number of us will eventually need some form of LTC at some point in our lives, be it due to aging or cognitive impairment (Alzheimer’s disease or dementia). Per Morningstar.com (2019 edition; https://www.morningstar.com/articles/957487/must-know-statistics-about-long-term-care-2019-edition), 47% of men aged 65 or older will need long term care in their lifetimes; for women in the same age group, it’s 58%. Adding insult to injury (no pun intended), there’s the cost; $48,612 median annual cost for an assisted living facility; $102,200 median annual cost for a nursing home (private room) and $52,624 median annual cost for a home health aide (44 hours/wk; 52 wks/yr). Finally, the average number of years long term care will be needed. For men, it’s 1.5 years; for women, it’s 2.5 years. While the duration doesn’t seem too long, by doing the math we can see that an ALF stay for these durations can cost approximately $72,918 for men, $121,530 for women. Bear in mind, these are median numbers; some stays will be significantly longer.
These numbers are sobering, to say the least. And while Medicaid is available to those low income families and individuals who qualify (care that is state/federally paid), income and asset limits, along with lack of choice of venue can be roadblocks/issues. For those who aren’t low income (most of us), there are only two options; self-funding out of savings or transfer the risk to an insurance carrier. The former will require much discipline with regards to monthly amount to save, annual return and savings length. The latter is a transfer of risk in which the outlay is typically lower than the amount of projected benefits for a given duration.
One type of long term care policy is a “stand-alone” policy, in which premiums are paid for a set duration of coverage. These policies are useful in paying for care however, the major negative is if you never need the coverage, you could be out of-pocket for all the premiums paid. There’s also the possibility of premium increases in some plans. Failure to pay premiums could result in a lapsed policy, in which you could lose all the money you’ve paid in. There are, however, some policies which can be converted to “paid up” status with limited benefits/duration.
A more advantageous way to pay for long term care expenses could be through a life insurance policy or annuity which offers long term care benefits (either single or annual premium). For example, with the life insurance policy, care benefits and the death benefit are typically the same pool of funds. With this strategy, if care benefits are needed, they are drawn from this pool; if funds for care are never needed, the death benefit remains intact to be distributed to the beneficiaries upon death. If death occurs while the funds are being used for care, the balance of funds (if any) is distributed to beneficiaries. Truly not a “use-it-or lose-it” situation.
An added benefit with the life policy is the cash value which accrues in the policy. The policy owner can tap into it should he or she ever need to (although doing so will reduce the care benefits/death benefit amount). Additionally, riders can be purchased for extended duration coverage. Finally, since the vehicle used is whole life, the illustration gives a “roadmap” as to what values will be at a given point in the life of the policy (assuming premiums are current); no guesswork!
Although this is a broad overview regarding long term care (and benefits/riders can vary), If you’d like to learn more about how to pay for long term care expenses, please contact me at d.babecki@db3insuranceservices.com or give me a call at 941-704-3134. As always, thank you for reading and let me know how I can be of service.
About David J Babecki
David Babecki is the Owner/Founder of DB3 Insurance Services and has over 20 years of experience in personal insurance, proudly protecting clients against outliving their money, stock market risk, and of course, insuring their lives against the unforeseen.
David started his career with Raymond James & Associates in 2000 before becoming an independent agent where he offers a number of services to solve client needs. David has spent the majority of his life in the beautiful Tampa Bay area where he currently resides with his family.
David is a Licensed Life Insurance Agent FL # D053146
The above article reflects the opinions and thoughts of David J. Babecki. The information contained in this material is believed to be reliable, but not guaranteed. It is for informational purposes only and is not a solicitation to buy or sell any products which may be mentioned. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.
Please note: all guarantees and/or promises are based on the claims-paying ability of the respective insurance company.
